07 Apr I Read the Carbon Tax Decision So You Don’t Have To: A Detailed Summary of the Main Issues
I Read the Carbon Tax Decision So You Don’t Have To: A Detailed Summary of the Main Issues
On March 25, 2021, the Supreme Court of Canada issued its judgment in the carbon tax cases. In these cases, Alberta, Saskatchewan, and Ontario, challenged the constitutionality of the Greenhouse Gas Pollution Pricing Act,[1] which sets out the federal carbon tax scheme. The Supreme Court, in its decision, found that the federal carbon tax was constitutional.
In this blog, I will provide an overview of the decision from the Court, as well as answer some of the big practical questions for understanding what this decision means going forward.
What is the Greenhouse Gas Pollution Pricing Act?
The Greenhouse Gas Pollution Pricing Act [the “Act”] is the federal legislation that creates the federal carbon tax scheme. In broad strokes, the Act sets out a carbon-pricing scheme for the purpose of reducing greenhouse gas emissions [“GHGs”]. The main body of the Act is divided into two parts. Part 1 sets a charge on fuels that produce GHGs, such as gasoline and natural gas.[2] This fuel charge applies in provinces that do not have a sufficiently stringent GHG pricing scheme for fuels, as determined by the federal government.[3]
Part 2 of the Act establishes emissions limits for large industrial emitters of GHGs and requires emitters who do not meet those limits to pay a charge.[4] Part 2 also includes a trading scheme that allows emitters who surpass their targets to obtain credits for that surplus, which can be used in later years to offset excess emissions or which can be traded to other large emitters.[5] Like Part 1, Part 2 only applies to provinces that do not have a sufficiently stringent GHG pricing scheme for large industrial emitters.[6] The broad goal of the Act, as stated in its preamble, is to mitigate climate change.
What was the legal issue in the carbon tax cases?
The big legal issue in the carbon tax cases was whether or not the Greenhouse Gas Pollution Pricing Act was validly enacted under the national concern branch of the federal government’s peace, order, and good government [“POGG”] power.
Very briefly, the federal and provincial governments get their power to pass legislation from sections 91 and 92 of the Constitution Act, 1867 respectively.[7] These two sections list a bunch of subject matters and, essentially, each government can only pass legislation dealing with the subjects that it has been assigned. This is why the provinces deal with health care and education, whereas the federal government deals with the criminal law and the military.
Notably, the POGG power is a little different from the other subject matters listed under sections 91 and 92 of the Constitution, because it is a residual power, meaning that it allows the federal government to legislate over any subject that is not otherwise assigned to the federal or provincial governments under sections 91 and 92. To sort out exactly what this means, the courts have identified three possible uses of the POGG power, which are referred to as the three branches of POGG. They are: the emergency branch, the gap branch, and the national concern branch.[8]
Very quickly:
- The emergency branch of POGG allows the federal government to pass legislation to deal with emergencies, such as the War Measures Act.[9]
- The gap branch of POGG deals with subjects that were mentioned in the Constitution, but for whatever reason, the drafters forgot to actually assign the subject to the federal government.[10]
- The national concern branch of POGG deals with subject matters that were not assigned to the federal government, but that need to be dealt with by the nation as a whole.[11]
In the carbon tax cases, the major legal issue was whether or not the Greenhouse Gas Pollution Pricing Act was validly enacted under the national concern branch of POGG. Quite simply, if it wasn’t, then the entire Act and the carbon pricing scheme that it sets up would be unconstitutional, which would render it completely void. On the other hand, if the Act was validly enacted under POGG—as the Supreme Court decided it was—then it would be constitutional and it would live to fight another day.
How do you decide if a piece of legislation is validly enacted under the national concern branch of POGG?
To decide if a piece of legislation is validly enacted under a constitutional power, the courts will undertake a two-step process. The first step is to figure out what the Act is about and the second step is to decide if it deals with one of the subjects assigned to the government that passed it. For the national concern branch of POGG, this means deciding if the legislation meets the requirements of another, three-part test set out by the Supreme Court.
How do you decide what a piece of legislation is about?
To decide what a piece of legislation is about, we have to decide what the “pith and substance” of the legislation is. This means identifying the essential matter of the Act or, in other words, what it is really about.[12] Effectively, when we talk about the pith and substance of an act, we are trying to summarize its main contents in a single, simple phrase. The Supreme Court has said that you can think of it like the answer you would give to an acquaintance asking the question, “What is this legislation about?”[13]
In the carbon tax decision, the Supreme Court provided some important clarifications for lawyers and judges on how to decide the pith and substance of a piece of legislation:
- The characterization should be as precise as the legislation allows.[14] So, if the legislation is very broad and covers the totality of a subject matter—such as aviation—then the description of the legislation should be equally broad. Conversely, if the legislation only deals with a very narrow subject matter or a specific piece of a subject matter, then the description should be equally narrow.
- The characterization of a piece of legislation can include the regulatory mechanism it employs, so long as the mechanism is an essential part of the legislation.[15] This means that the description of a piece of legislation can include not only what is about, but how it goes about achieving its goals.
- Finally, the characterization of legislation should not be done with step two of the test in mind—that is, deciding if the legislation deals with a power assigned to the level of government that passed it.[16] Genuinely, ask yourself what the law is about and then go from there.
How do you decide if a piece of legislation is validly enacted under the national concern branch of POGG?
Once the courts have decided what a piece of legislation is really about, the second step of the process is to see if it falls under a subject matter assigned to the government that passed it.[17] In the case of the national concern branch of POGG, this means deciding if the subject matter of the legislation meets the test set out by the courts for something to be validly enacted under the national concern branch.
In the past, to do this, we would look to the test set out in a Supreme Court case called Crown Zellerbach—and, if you’re interested, you can find a description of this test in the ELC’s primer blog on the carbon tax case here. However, in the carbon tax decision, the Supreme Court made changes to the Crown Zellerbach test, so we have a bit of a new approach to follow.
In particular, in the carbon tax decision, the Supreme Court set out a three step test to deciding if a piece of legislation was validly enacted under the national concern branch of POGG.[18] We will discuss each of these steps in the next few headings—but, as we go through them, keep in mind that this test is applied to the subject matter of the legislation, meaning the legislation’s pith and substance, rather than the legislation itself.[19]
What is the first step of the national concern test?
The first step of the national branch test is to ask a simple threshold question: is the subject matter of the legislation something that is of concern to the nation as a whole?[20] The idea behind this is to make sure that the national concern doctrine of POGG is not invoked too lightly and that the subject matter of the legislation is indeed something of a national concern.
What is the second step of the national concern test?
The second step of the national concern test is to ask if the subject matter of the legislation has a “singleness, distinctiveness and indivisibility that clearly distinguishes it from matters of provincial concern”.[21] According to the Supreme Court, this means two things: the matter must be specific and identifiable in a way that distinguishes it from provincial matters and the matter must not be something the provinces are able to deal with themselves.[22] We will go through each of these two requirements in turn.
Specific, identifiable, and distinct from provincial matters
The first requirement of the second step of the national concern test is that a subject matter must be specific and identifiable in a way that distinguishes it from provincial matters. According to the Supreme Court, this means three things.
Firstly, for a subject matter to be specific and identifiable in a way that distinguishes it from provincial matters, it must have a predominantly international and interprovincial character.[23] To put this in terms of an example, the national concern branch has been used to deal with marine pollution, which flows between provinces and countries and, therefore, has an international and interprovincial character.
Secondly, to be distinct from provincial matters, a subject matter cannot be an aggregate of subject matters that have already been assigned to the provinces or the federal government under the Constitution.[24] Broadly, this refers to the fact that some subjects may appear to be a single, unique topic, but are actually a collection of other existing matters that are already assigned under the Constitution. To give an example, the environment, even though it seems like one thing, is actually a collection of already-assigned subjects under the Constitution, such as wildlife, water, forests, mining, and fishing.[25]
Finally, for a subject matter to be distinct from provincial matters, it must not duplicate provincial powers.[26] This means that there must be something about the subject matter that makes it more than just a duplication of what the provinces are able to do. Keep in mind here that a subject matter does not become national just because it is big.[27] To the contrary, the provinces deal with all sorts of big issues having to do with health care, education, and the economy, among other things. Accordingly, to be a national concern, a subject matter must somehow be national and not merely important.
Provincial inability to legislate
The second requirement for a matter to be single, distinct, and indivisible, per the second step of the national concern test, is that the subject matter must be something that the provinces are not able to deal with themselves. This is referred to as the “provincial inability test”.
According to the Supreme Court, there are three criteria that must be met to decide that the provinces are incapable of dealing with a subject matter.[28]
- The legislation enacted under the subject matter could not have been enacted by all of the provinces working together.[29]
- The failure to include one or more provinces would undermine the operation of any legislation passed under the subject matter.[30]
- The failure of one province to legislate the subject matter would have grave extra-provincial consequences.[31] Note that mere inefficiency or additional financial costs will not qualify as grave consequences.
What is the third step of the national concern test?
The third and final step of the national concern test is to ask whether recognizing the subject matter as a national concern would have an impact on provincial jurisdiction that is reconcilable with the balance of power between the federal and provincial governments under the Constitution.[32]
In simpler words, this means that the court must assess the extent of the legislative power the federal government would be able to exercise under the proposed POGG power and ask whether it would concentrate too much power in the hands of the federal government at the expense of the provincial governments. The underlying concern is that the national concern branch of POGG could extend the legislative power of the federal government in a way that diminishes the legislative power of the provincial governments and, in doing so, undermine the existing balance of power between the two levels under the Constitution.
At the same time, to decide if something should be recognized as a national concern, the Court must also weigh the scale of impact on provincial jurisdiction against the interests that make the subject matter a national concern.[33] This means that the decision of whether or not the scale of impact on provincial jurisdiction is reconcilable with the balance of power under the Constitution should be made in the context of the reasons why the subject matter is a matter of concern to the nation as a whole. The Court does not say this exactly, but, presumably, a greater impact will be justified in the context of a more significant concern and vice versa.
As a last word, take note that in setting out a new version of the national concern test, the Supreme Court also clarified a few technical issues for the benefit of lawyers and judges.
- The double aspect doctrine does apply to the national concern branch of POGG, meaning that the federal and provincial governments can pass overlapping legislation so long as they are each legislating a subject matter they are assigned under the Constitution—including POGG.[34] The Supreme Court decided that there is no reason to treat POGG differently from any other power under the Constitution, and this is in line with the rest of constitutional doctrine.
- To fall under the national concern branch, there is no need for a matter to be something new that the drafters of the Constitution would not have been aware of.[35] Instead, the central question is whether the matter requires a national approach, regardless of whether it is new or not.
With that, it’s finally time to take a look at the Greenhouse Gas Pollution Pricing Act and the reasons the Supreme Court decided that it is constitutional under the national concern branch of POGG.
According to the Supreme Court, what is the subject matter of the Greenhouse Gas Pollution Pricing Act?
According to the Supreme Court, the “pith and substance” of the Greenhouse Gas Pollution Pricing Act is: “establishing minimum national standards of GHG price stringency to reduce GHG emissions”.[36]
This is a bit wordy, so it can be broken down into three parts:
- The Act sets up a pricing scheme for GHG emissions;
- The Act sets minimum standards that the provinces must meet; and
- The goal of the Act is to reduce GHG emissions.
According to the Supreme Court, why is the subject matter of the Greenhouse Gas Pollution Pricing Act a national concern?
In coming to its final yes or no decision about the constitutionality of the Greenhouse Gas Pollution Pricing Act, the Supreme Court applied its new three-step approach to the national concern test. Here, we will go through each of these steps briefly in turn.
Step 1: is it a national concern?
The Supreme Court found that the subject matter of the Greenhouse Gas Pollution Pricing Act is a national concern because it deals with GHG emissions. Quite simply, in light of the seriousness of climate change, GHG emissions are of concern to the nation as a whole and, moreover, putting prices on GHG emissions is central to the project of mitigating climate change.[37]
Step 2A: is it specific, identifiable, and distinct from provincial matters?
The Supreme Court found that the subject matter of the Greenhouse Gas Pollution Pricing Act is singular, identifiable, and distinct from provincial matters, for the following reasons:
- The subject matter is extra-provincial and international in character, because GHG emissions have extra-provincial and international effects, given that GHG emissions do not stay within provincial borders.[38]
- The subject matter is singular and not an aggregate, because GHG emissions constitute a single, distinct subject matter and, moreover, carbon pricing is a single, distinct regulatory mechanism.[39]
- The subject matter is not duplicative of provincial powers, because setting minimum national standards is inherently a national rather than provincial endeavour.[40]
Step 2B: is it something that the provinces could not deal with?
The Supreme Court found that the subject matter of the Greenhouse Gas Pollution Pricing Act is not something the provinces could deal with, for the following reasons:
- The provinces could not have enacted minimum national standards for carbon pricing, because the provinces cannot enact nationally binding standards.[41]
- The failure to include one or more provinces in a national carbon pricing scheme would jeopardize the success of the overall legislative scheme, because economic activities that produce a lot of GHG emissions may migrate to provinces without a carbon pricing scheme, thereby undermining the point of the scheme.[42]
- There would be grave extra-provincial consequences if a province failed to participate in a national carbon pricing scheme to reduce GHG emissions, because GHG emissions are contributing to climate change, which gravely affects everyone, regardless of location.[43]
Step 3:is the scale of impact on provincial jurisdiction reconcilable with federalism?
Finally, the Supreme Court decided that the scale of impact of recognizing minimum standards for carbon pricing as a national concern is reconcilable with the balance of power under the Constitution.
In coming to this conclusion, the Court found that the overall impact of recognizing this subject matter as a national concern would be fairly limited.[44] Recall that the subject matter of the Greenhouse Gas Pollution Pricing Act is “establishing minimum national standards of GHG price stringency to reduce GHG emissions”.[45] This is a fairly narrow subject matter and, accordingly, would have fairly narrow impacts on provincial jurisdiction.
Put in practical terms, if this subject matter were recognized as a national concern, all the provinces would lose would be the ability to create a carbon pricing scheme that is less effective than the national standards set by the federal government or, indeed, to have no carbon pricing scheme at all. In other words, the provinces would retain the power to legislate all other aspects of GHG emissions, as well as the activities and industries that produce them.
Perhaps more importantly, the Supreme Court decided that the scale of impact of recognizing the subject matter as a national concern is acceptable given the irreversible harm that would be felt across the country if there were not a national approach to reducing GHG emissions.
Accordingly, the Court decided that the impact of recognizing a national concern under POGG is reconcilable with the balance of power between the federal and provincial governments under the Constitution.
So, what was the final decision?
In the final result, the Supreme Court decided that the Greenhouse Gas Pollution Pricing Act is constitutional under the national concern branch of POGG.
Why doesn’t this have anything to do with whether the carbon tax is a tax?
In addition to the question of whether or not the Greenhouse Gas Pollution Pricing Act was validly enacted under the federal POGG power, some of the parties also challenged the Act as being an unconstitutional tax. Practically speaking, this required the court to decide whether the “carbon tax” set up by the Greenhouse Gas Pollution Pricing Act is a tax or a regulatory charge. In a nutshell, to be a regulatory charge, the carbon tax must be connected to a valid regulatory scheme.[46]
In this case, Ontario argued that the carbon tax was not connected to a regulatory scheme, because the revenue generated by the Greenhouse Gas Pollution Pricing Act would not necessarily be used for the regulatory purpose of reducing GHG emissions.[47]
Taking a different view, the Supreme Court decided that when a regulatory charge is imposed to try to change behaviour—such as to reduce GHG emissions—then the revenue generated does not need to be tied to the costs of the scheme for it to be connected to the regulatory scheme.[48] Likewise, the revenue does not need to be used to further the purposes of the scheme. Instead, it is enough that the regulatory charge is used to change behaviour, regardless of what happens to the revenue.
Consequently, the Court decided that the carbon tax is not actually a tax: it is a regulatory charge.[49]
What do the dissenting decisions mean?
Within the carbon tax decision, there were actually four separate decisions! The main decision was written by the Chief Justice, Richard Wagner, and was supported by five of the eight other Supreme Court justices. This decision is called the majority decision, because it was supported by the majority of the judges on the Supreme Court. The majority decision is the decision that sets the law, which is why this is the decision that we focus on and, accordingly, why this blog has described the majority decision rather than the other decisions.
Judges will sometimes write additional decisions, even though these other decisions do not set the law, if they think it is important to put the reasons for their disagreement with the majority out into the legal sphere. Sometimes, if the same legal issue comes back to the Supreme Court in future years, the lawyers will pick up on these arguments and they may eventually become the law. However, take note that, at least for the time being, a dissenting decision does not set the law.
In the carbon tax decision, there were three dissenting decisions, written by Justice Côté, Justice Brown, and Justice Rowe respectively. Justice Côté specifically dealt with the use of King Henry VIII clauses in the Greenhouse Gas Pollution Pricing Act—which is an interesting, but fairly specific legal issue. Justices Brown and Rowe each wrote alternative views on the POGG test and its application to this case. For interest’s sake, feel free to take a look at those decisions if you have a spare afternoon or two.
What can the provincial governments do from here to legally challenge the federal carbon tax?
From a legal perspective, there is not a lot the provinces can do to challenge the constitutionality of the Greenhouse Gas Pollution Pricing Act from here. The Supreme Court of Canada is the highest court in the country, which means that there are no further appeals from this decision: it is the end of the road. The Greenhouse Gas Pollution Pricing Act is constitutional, and that is the final word on the matter.
Interestingly, back when the other provinces started their carbon tax cases, Manitoba also started its own case using a different legal process, called a judicial review.[50] This case is still winding its way through the courts, so it may be a while before it is clear what comes of it. However, given the declaration from the Supreme Court that the Greenhouse Gas Pollution Pricing Act is constitutional, it is worth noting that a lower court, such as the one involved in the judicial review, does not have the power to disagree with the Supreme Court.
What can the federal government do from here to create further measures to mitigate climate change?
When the courts recognize a new POGG power, then the federal government has a general power to pass legislation dealing with this subject. This means that the federal government will have the power going forward to make changes to the Greenhouse Gas Pollution Pricing Act. It will also be able to pass new legislation, but only if it deals with the same subject matter.[51]
In this case, the permitted subject matter is: “establishing minimum national standards of GHG price stringency to reduce GHG emissions”.[52] This is a pretty narrow subject matter, which restricts the federal government to imposing national pricing standards to reduce GHG emissions. In other words, under its new POGG power, the federal government will not be able to directly regulate the industries and activities that produce GHG emissions. Instead, it will only be able to set carbon prices to reduce GHG emissions and, even then, it will only be able to set minimum national standards rather than a binding national scheme. This is a very narrow power to legislate going forward.
To pass any other legislation regulating GHGs, the federal government will have to look to its other powers under section 91 of the Constitution, such as the criminal law power or the general taxation power, which may allow broader approaches to mitigating climate change.
[1] Greenhouse Gas Pollution Pricing Act, SC 2018, c 12, s 186.
[2] Ibid, Schedule 2.
[3] Ibid, s 166.
[4] Ibid, s 174.
[5] Ibid, s 174-175.
[6] Ibid, s 189.
[7] Constitution Act, 1867, (UK), 30 & 31 Vict, c 3, reprinted in RSC 1985, App II, No 5 [Constitution]. N.B. there are also a few other sections that assign powers to legislate to the provincial and federal governments, but 91 and 92 are the big ones.
[8] Peter W. Hogg, Constitutional Law of Canada, vol 1, 5th ed loose-leaf (Scarborough, Ont: Carswell, 2007), ch 17 at 5.
[9] Fort Frances Pulp and Power Co v Man Free Press Co, [1923] AC 695.
[10] Peter W. Hogg, Constitutional Law of Canada, vol 1, 5th ed loose-leaf (Scarborough, Ont: Carswell, 2007), ch 17 at 7.
[11] R v Crown Zellerbach Canada Ltd, [1988] 1 SCR 401 at 432.
[12] Canadian Western Bank v Alberta, 2007 SCC 22 at para 26
[13] Desgagnés Transport Inc v Wärtsilä Canada Inc, 2019 SCC 58 at para 35.
[14] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11 at para 52.
[15] Ibid at para 53.
[16] Ibid at para 56.
[17] Canadian Western Bank v Alberta, 2007 SCC 22 at para 27.
[18] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11 at para 132.
[19] Ibid at paras 114-18.
[20] Ibid at para 143.
[21] Ibid at para 145.
[22] Ibid at para 146.
[23] Ibid at para 148.
[24] Ibid at par 150.
[25] R v Crown Zellerbach Canada Ltd, [1988] 1 SCR 401 at 454-455.
[26] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11 at para 150.
[27] Ibid at para 147.
[28] Ibid at para 152.
[29] Ibid.
[30] Ibid.
[31] Ibid at para 153.
[32] Ibid at para 160.
[33] Ibid at para 161.
[34] Ibid at para 126.
[35] Ibid at paras 134-136.
[36] Ibid at para 57.
[37] Ibid at paras 167-171.
[38] Ibid at para 174.
[39] Ibid at paras 173, 175.
[40] Ibid at paras 176.
[41] Ibid at para 182.
[42] Ibid at para 183.
[43] Ibid at para 187.
[44] Ibid at para 199.
[45] Ibid at para 57.
[46] Ibid at para 213.
[47] Ibid at para 214.
[48] Ibid at para 216.
[49] Ibid at para 219.
[50] Her Majesty the Queen in Right of Manitoba v Governor in Council et Al, Winnipeg T-685-19 (FC).
[51] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11 at para 121.
[52] Ibid at para 57.
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